Abstract :
We empirically analyze the time series of the Korea Composite Stock Price Index (KOSPI) from March of 1992 to February of 2007 using methods from the hydrodynamic turbulence. To this end, we focus on characteristics of the return and volatility, which are respectively the price change and a measure of the financial market fluctuation over a time interval. With these, we show that the non-Gaussian probability distribution of the return can be modeled by the convolution of the conditional probability distribution of the return given the volatility and the distribution of the volatility per se. From this model, we suggest that the non-Gaussian characteristic of the return results from the fluctuation of the volatility. That is, a large return is partly, if not entirely, due to the market fluctuation in a long time scale influencing the fluctuation in a short time scale via net information flow. We further show that the volatility has a multi-fractal property, which resembles the multifractality of the energy dissipation in the turbulence.
